Public Sector Deficit Risk and Infrastructure P3s : A Value for Funding Approach to Evaluation

Value for Money (VfM) is the standard evaluation framework for infrastructure public-private partnership (P3) alternatives to traditional public-sector project procurement and financing. VfM's primary focus is on a net present value cost comparison between the alternatives. However, in light of the challenges that US state and local governments face in the current economic environment, an additional analytical framework that explicitly expands the focus to include public-sector funding and fiscal issues in the evaluation of an infrastructure P3 would be useful in many cases. We are calling this new framework a ‘Value for Funding' (VfF) approach. This paper presents an example of a VfF approach applied to a specific topic, the risk-absorption features of various types of P3 contracts with respect to US state and local public-sector deficits. More generally, the paper outlines a stochastic methodology for the comparative assessment of P3 and traditional alternatives that will likely be the basis of much other VfF analysis, especially where the funding stream is relatively independent of specific project operation and the public sector is fiscally constrained